The Big Question: What does a foreign takeover of British Energy mean for the industry?

Why are we asking this now?

After months of wrangling, Electricite de France (EDF), the world's biggest producer of nuclear energy, is being allowed to buy the British Energy Group. The price – £12.5bn – makes it a good deal for British Energy's shareholders, because the French are paying 35 per cent above the last quoted price for British Energy shares. In July, they offered £7.65 a share, but British Energy turned them down, saying that it undervalued their assets. Now they are paying £7.74. The government will get £4bn from the sale, because just over a third of British Energy was taken back into public ownership after being privatised.

How big will this make EDF?

The deal will make EDF by a very long way the biggest operator in the British energy market. Since EDF is state owned, the French government will arguably have more control over energy prices in this country than our own government. It will mean that ownership of the biggest eight companies in the British energy market will comprise 34 per cent British, 32 per cent French, 27 per cent German, and 7 per cent Spanish.

What are the French up to?

What makes the sale particularly attractive to EDF is the land that comes with it. British Energy owns seven vacant sites around Britain that lie conveniently alongside its ageing nuclear powers stations, and a site in Essex adjacent to a now defunct nuclear plant. The government wants a new generation of nuclear power stations built in this country, and these are eight obvious places to build them. And while British Energy had the land, EDF has the expertise. They own 58 nuclear power stations, which provide more than three quarters of France's electricity.

Which other energy companies are foreign-owned?

The second biggest player in the British energy market, after British Energy, is E.ON, with headquarters in Dusseldorf. It bought Powergen, now rebranded as E.ON UK, one of the three big generating companies formed when electricity was privatised in 1990. The fourth biggest in the market is another German company, RWE, which owns Npower, which has six million British customers. On six per cent of the British market, there is Scottish Power, which was taken over in 2006 by the Spanish firm, Iberdrola. Even before this latest takeover, 11 million British households are receiving their power supplies from foreign owned companies.

Isn't the Government worried by this trend?

Odd though it may seem, the government sees this latest buy-up as a very big contribution to their drive to produce more "home-grown" energy. For nearly 30 years, the UK has had a vast supply of oil and gas on tap in the North Sea, but it is running out. Earlier this week, the Business Secretary, John Hutton, told the Labour Party conference in Manchester: "Eighty per cent of our gas supplies are predicted to come from overseas by 2020, much of it from the most unstable regions on the planet."

His reference to "unstable regions" was slightly misleading. He had the Middle East in mind, but the country with the largest known reserves of natural gas is Russia. What worries the British government is not whether Russia is "stable", but how it might use the political power that comes from its control of energy supplies. Last month's events in Georgia did nothing to calm nerves. The government believes that one way to make sure that the Kremlin cannot turn off the lights in Britain is to have a new generation of nuclear power stations up and running in this country, even if they are owned by the French.

What does UK business think of the foreign invasion?

One big energy company still in British hands is Centrica, which owns British Gas. They hired the American bank Goldman Sachs to look into the possibility that they might buy the British Energy Group. Reputedly, they were hoping that the government would back a British solution to the problems of Britain's biggest energy supplier, but it was not forthcoming. Centrica is now negotiating with EDF to buy 25 per cent of the French firm's planned UK nuclear energy business, if the EDF takeover of the British Energy Group is completed.

That would bring a substantial part of the British nuclear industry back into British ownership, but it would not answer a common British complaint that the rules are different players, even within the EU. The French government has consistently resisted pressure to allow foreign energy companies to compete freely in the French market. The Germans have also been criticised for not opening up their markets.

Could it mean political problems for the Government?

Possibly the biggest single cause of the government's current unpopularity is the size of people's winter fuel bills. People think that the government should be doing something to bring prices down, and to claw back the vast profits that the energy companies are making. This latest takeover is likely to foment suspicions that instead of taking action, the government is sitting back and allowing foreign-owned energy companies get rich at the expense of the British consumer.

Who is arguing this?

It is not just the bloke in the pub voicing this suspicion. It was echoed last month by Ed Mayo, who will head the new "super watchdog", Consumer Focus, which will take over on 1 October from the National Consumer Council, Energywatch and other organisations, making him the most authoritative voice in the country speaking up for consumers. In his first public statement after the government had announced his appointment, he roundly accused foreign energy companies of ripping off British consumers.

So are British customers treated fairly by foreign-owned energy companies?

Even before the latest announcement, EDF had 5.5 million customers in the UK. In July, their prices were raised by 22 per cent. In France, however, the government – which owns 85 per cent of EDF – would not allow them to increase prices by more than 5 per cent. This was very nice for French consumers, but obviously cuts into EDF's profitability. The lingering suspicion is that the shortfall is being made up at the expense of British customers, who do not have the same government protection.

How does EDF respondto the charge?

EDF has flatly denied it, saying that its UK and French operations are separate and there is no cross-subsidy, but Mr Mayo, for one, is not convinced. "Closed and protectionist European energy markets end up picking the pockets of consumers in this country," he warned. Now that world oil prices are falling, domestic fuel bills out to be coming down too, he says – and if they do not, he is threatening to use new legal powers to force them to come down.

Should British energy companies be foreign owned?


* Mergers and acquisitions are a basic part of free markets, and make for greater efficiency.

* Foreign investment brings foreign technical know-how much needed by the British energy industry.

* Consumers do not care who owns the energy company so long as they get a good service.


* A rigged market lets European companies buy British power firms – but we are cannot buy into theirs.

* Fuel prices are higher here because the French government protects consumers but the British one does not.

* It is absurd to demand "home grown" energy sources, while allowing foreign firms to dominate here.

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